Online business-to-business marketing or e-commerce has also emerged as a major player in the marketing arena. Modern businesses model through online shopping according to Lee (2001) has capitalised on the collection of detailed consumer behaviour information which couldn’t be done on a physical shopping trip. These paradigm shift has also allowed the commercial Web providers to collect not only the same information available in most physical transactions—identity, credit history, employment status, legal status—but also such additional information as specific history of goods and services searched for including other Internet sites visited and contents of the consumer’s data storage device.
Notable exceptions could be noted from traditional business model where single source data, such as supermarket scanner data, in the physical world could also aggregate data involving generalizations across groups of consumers or inferences and assumptions about behaviour based on broad indicators, such as geography or demographics
Lee (2001) urges that current e-commerce practices cannot match the traditional business models in some key performance attributes, such as privacy and security in business-to-consumer (B2C) commerce. As a result the customer perceives greater value and benefit from the ability to one-stop-shop with known and trusted companies. Amazon.com, Marshall Industries, and Edmunds.com are good examples of companies who offer value-dded information, products and services to the users consistently therefore enhancing the overall quality of the time that customers spend at the companies' e-commerce sites.
Analysis of Porter’s 5 Forces and impact by the internet
The Porter's Five Forces Model derives from the basic forces of competition: competitor rivalry, entry barriers for new competitors, the threat of substitute offerings, the bargaining power of suppliers, channels, and buyers. The model demonstrates how the traditional industry model has been affected due to the advent of internet which attracted many to start on-line businesses.
Porter (2001) urges that whether an industry is new or old, its structural attractiveness is determined by five underlying forces of competition: the intensity of rivalry among existing competitors, the barriers to entry for new competitors, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers. In combination, these forces determine how the economic value created by any product, service, technology, or way of competing is divided between, on the one hand, companies in an industry and, on the other, customers, suppliers, distributors, substitutes, and potential new entrants.
The alteration of the dynamics of traditional industry requires entrepreneurs to use the model to identify competition, make a plan, and implement the process. By using the five forces model it is clear that internet and IT has made it possible to both focus on the top and bottom lines and market share is expanded and costs are cut. Many products and services exist just online, many of the traditional companies have also gone online taking advantage of internet use. While internet has opened avenues of competition to existing companies it has also created opportunities for start ups. Now businesses can enter the market on-line with few barriers to entry. The Porter’s Five Forces Model below will further be used to illustrate on how internet impacted the five forces.
Porter (2001)
(a) Competitive Rivalry
(-) Reduces differences among competitors as offerings are difficult to keep proprietary
(-) Migrates competition to price
(-) Widens the geographic market, increasing the number of competitors
(-) Lowers variable cost relative to fixed cost, increasing
The industry competition is very high and according to Porter (2001)’s analysis above, competition has increased overall as a result of the internet and e-Commerce. The negative shows that the companies are under immense pressure to survive in a very competitive environment where it is hard to make profits due to on-line transactions. On-line book stores and catalog companies such as Amazon.com and Barnesandnoble.com are an excellent example although other major bookstores have used IT to create value for their customers. There are also many smaller niche affiliate bookstores that when combined take a great deal of market share. They offer even more competition. These values include associates programs, ease of payment and shipping and many, many others.
b) Power of suppliers:
(+/-) Procurement using the Internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers
(-) The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies
(-) Internet procurement and digital markets tend to give all companies equal access to suppliers, and gravitate procurement to standardized products that reduce differentiation
(-) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers
Supplier power is higher when buyers have fewer choices from whom to buy and in this case the internet has significantly impacted the power of suppliers for example the drop shipping has increased the amount of suppliers available. Business to business e-commerce has seen phenomenal growth as business realize that internet can help to reduce costs across the suppliers drastically. The supplier’s relationship has been reshaped by integrating production and shipping plans. The numbers of suppliers have increased due to new foreign trade rules and the suppliers may be local or foreign. This has led businesses to force suppliers to reduce prices. All what is needed on individuals is to form an agreement to sell products for the company and the company takes care of all the logistics. The same is true of associates programs that amazon.com and google.com offer. Associates allow a webmaster to earn money by recommending products from others. This increases supplier offerings.
c) Power of buyers:
(+) Eliminates powerful channels or improves bargaining power over traditional channels
(-) Shifts bargaining power to end consumers
(-) Reduces switching costs
Buyer power is higher when buyers have more choices. Businesses are forced to add value to their products and services to get loyalty. Many loyalty programs include excellent services that customers demand on-line. Customers want to solve their problems and many times they are more successful on-line than on-phone. Also, we see internet savvy businesses springing up offering more valuable goods and services at lower costs. Now with the advent of eBay, many people are assuming roles as drop shippers. Individuals can have a thriving business selling goods of larger companies without having to carry inventory.
d) Threats of substitutes:
(+) By making the overall industry more efficient, the Internet can expand the size of the market
(-) The proliferation of Internet approaches creates new substitution threats
Threat of substitute products or services is high when there are many product alternatives. This is different than having many suppliers. Examples of alternatives are exchanging brand names, substituting credit card capabilities, and looking at better values from cheaper sources. The internet allows this with the "global economy". I can substitute my product by purchasing from companies overseas where labor, services and products are cheaper, but of comparable quality.
e) Threat of new entrants:
(-) Reduces barriers to entry such as the need for a sales force, access to channels, and physical assets – anything that Internet technology eliminates or makes easier to do reduces barriers to entry
(-) Internet applications are difficult to keep proprietary from new entrants
(-) A flood of new entrants has come into many industries
Threat of new entrants is high when it is easy for new competition to enter the market. Now, small businesses can open shop at no cost or for minimal costs per month and make a lot of money as people are always looking for opportunities to improve a product or service or just create and sell something new. With the launch of Ebooks that tell others how to do what they did, new entrants have increased. Rivalry among competitors is high when competition is more intense within industries. Rather than signaling a healthy business environment, according to Porter (2001) the sheer number of dot-coms in many industries often revealed nothing more than the existence of low barriers to entry, always a danger sign.
Traditional versus Internet-based models
The internet based models according to Porter (2001) powerfully influences industry structure and sustainable competitive advantage. However it also affects the basic forces of competition because it is an open system whose technological advances level most industries’ playing fields – thus intensifying competitive rivalry and reducing entry barriers. It dramatically increases available information, shifting bargaining power to buyers.
Lee (2001) urges that large firm size used to serve as an effective entry barrier in the traditional industry economy, but e-commerce and virtual value chain has redefined the concepts of economies of scale which allow small companies to achieve low unit costs for products and services in markets dominated by big companies. The advantage of e-commerce or online superstores is the ability to spread fixed costs over a larger customer base and offer a wide selection of goods to frequent visitors. For example, Amazon.com is able to apply the same software written to help organize auction listings to toy-selling teams to rearrange their catalogue by price, age group and other variables (Anders, 1999 cited in Lee 2001).
The change of business model has been enhancing businesses’ value proposition, value network, partners, and efficiency in reaching the customer. However it must be noted that today's business landscape is characterized by the intense use of ICT (e.g. for e-business), fierce global competition, rapid change and results in increasing complexity, high risk and greater uncertainty than ever before. E-business can be understood as a powerful extension of the more traditional EDI that predates today's Internet and stands for the exchange of business data using an understood data format.
Interpret from the theory perspective
The importance of B2B is considerable as majority of businesses are nowadays large and have established supply chains and the principles of B2B e-commerce encompass supply chain management. Companies have now thorough knowledge of other company’s offer with schedules to cater for its needs and requirements and are developing relationships with their suppliers to treat them as their own divisions. More collaboration has come into the system and B2B marketplaces are quite open in operation. The companies have got a new dimension for customer relations and at times think like one with the help of customer relation management program which has become an integral part of B2B. An aspect of partnering has also come up and B2B marketplaces utilise partner relationship management to serve the customer better and efficiently. For example, computer companies works with Microsoft and other anti-virus companies such as Norton to supply an integrated product to the computer user. Wide arrays of software packages are available to help e-commerce sites create unique boutiques that target specific customers. For example, American Airlines has personalized its website so that business fliers view it as a business airline and leisure travellers see it as a vacation site. Amazon, which built its own personalization and customer relationship management (CRM) systems, is well known for its ability to recognize customers' individual preferences. Create an easy-to-use customer service application. Providing just an e-mail address can be frustrating to customers with questions. Live chat or, at the very least, a phone number will help.
Differences in business transformation processes
As discussed earlier, value creation process enables the digital economy to rely more on the economic principle of abundance through the information shared during and after the value creation process. This process involves five steps and thus: gather, organize, select, synthesize, and distribute. The table below summarizes and compares two different business transformation processes.
According to Lee (2001) ttraditional management's focus was to improve the transformation box by implementing techniques such as total quality management, lean manufacturing, and process re-engineering. In contrast, in the digital economy (or marketspace), X represents data or information used to create valuable products or services (Ys) for the customers.
Conclusion
The internet centered business model have proved to be effective medium of conducting business in many industry sectors. A study of e-marketplace illustrates that relationship marketing (RM) have popularized and network can help to minimise the cost of infrastructure, maximise accessibility for every partner and facilitate knowledge and exchange of products and service to all partners. Following up on the example given earlier, this is the kind of strategic alliance being used by computer and software companies.
From the discussion and review of literature it could be suggested that companies do not compete nowadays but networks compete and there is competitive collaborations rather than adversarial relationships to get advantage. Such relationship marketing brings focus on technical innovations into marketing foresight. For example the e-hub of automotive industry has shown that information can transform the way people think and function. It has brought forward the concept of ‘thinking like a customer’ (Kandampully 2003).
In conclusion I think the traditional business models have changed as a result of E-Business technologies and greater investments in IT and absorptive capacity has allowed organizations to use customer relationship management. Customer relationship management plays a major role in making relationship in business-to-business e-business (Chen & Ching 2004).
Reference:
Chen, J. Ching, R .K.H. 2004, ‘An empirical study of the relationship of IT intensity and organizational absorptive capacity on CRM performance’, Journal of Global Information Management, Vol. 12, Iss. 1, pp. 1 (Online ProQuest).
Evans, P.B. and Wurster, T.S. (1997), ``Strategy and the new economics of information'', Harvard Business Review, September-October, pp. 70-82.
Kandampully, J. 2003, ‘B2B relationships and networks in the Internet age’, Management Decision, Vol. 41, Iss. 5/6, pp. 443-452 (Online ProQuest).
Wit, B. D. and R. Meyer (2006). Strategy Synthesis, Thomson Learning.
Lee, C. (2001), An analytical framework for evaluating e-commerce business models, Internet Research: Electronic Networking Applications and Policy, Volume 11 . Number 4, pp. 349-359, MCB University Press
Porter, M, E. (2001) Strategy and the Internet, harvard business review